Dollar Declines as Lawmakers Express Optimism on Cliff

By Allison Bennett -
Nov 28, 2012

The Dollar Index fell for the first
time in three days as comments from U.S. lawmakers fueled
optimism the so-called fiscal cliff will be avoided.

The yen rose to a one-week high against the dollar as
technical indicators signaled its recent decline may have been
excessive. The euro erased losses against the greenback as
stocks rebounded amid speculation investors will accept Greece
repurchasing its own bonds at below market prices. Brazil’s real
fell against all its major counterparts on speculation the
central bank will keep interest rates at record lows.

“I expect it to be a headline-driven market -- encouraging
headlines will see stocks rally and vice-versa -- but we are
still many days until resolution,” said Richard Franulovich, a
senior currency strategist at Westpac Banking Corp. in New York.
“The rally in dollar-yen has run its course. We’ve had a very
large move in recent days.”

The Dollar Index fell 0.2 percent to 80.271 at 5 p.m. New
York time. The gauge tracks the U.S. currency against those of
six major trading partners.

The Japanese currency gained 0.1 percent to 82.08 per
dollar time after touching 81.69, the strongest since Nov. 21.
It has dropped 2.8 percent this month. The 17-nation euro was
little changed at 106.31 yen, trimming its monthly gain to 2.9
percent. The euro rose 0.1 percent to $1.2957 and is little
changed in November.

The shared currency weakened as much as 0.1 percent to
1.20305 Swiss francs, the lowest since Sept. 5. It has traded
between 1.199 francs and 1.25 francs since the Swiss National
Bank introduced a ceiling of 1.20 in September 2011 after the
currency rose to a record, hurting exporters.

Boehner, Obama

Equities reversed declines as House Speaker John Boehner,
an Ohio Republican, said he is optimistic lawmakers engaged in
budget talks can “avert this crisis sooner rather than later.”
He made his remarks to reporters, while saying he continues to
oppose the expiration of tax cuts for top earners and Democrats
need to get “serious” on budget cuts.

President Barack Obama said separately at the White House,
“My hope is to get this done before Christmas.”

The Standard & Poor’s 500 Index rose 0.8 percent after
declining as much as 1 percent. The 120-day rolling correlation
between the euro-dollar pair and the S&P 500 has risen to 0.61
from a 2012-low of 0.39 in June. A reading of 1 indicates two
assets move in lockstep.

Greek Plans

The euro pared earlier losses as Greece said it would
unveil plans next week to tender for bonds issued in its 100
billion-euro ($129 billion) restructuring this year. The prices
are “expected to be no higher than those at the close” on Nov.
23, euro-area finance ministers said yesterday. Those notes
trade at about 29.5 cents on the euro, up from 28.1 percent last
week, according to brokerage Exotix Ltd. in London.

The real weakened after economists surveyed by Brazil’s
central bank said they expect policy makers to keep the target
lending rate, known as the Selic, unchanged at a record low 7.25
percent through next year as the government seeks to spur
economic growth. Brazil’s economy is forecast to grow 1.5
percent this year, the least since 2009.

The rand of South Africa, the continent’s biggest economy,
gained against the euro even after central-bank Governor Gill
Marcus told delegates of the National Union of Metalworkers of
South Africa in Johannesburg today that fourth-quarter growth is
“likely to be very low.” She said would be inappropriate to
adjust interest rates at the moment.

The rand rose 0.2 percent to 11.4157 per euro and added 0.3
percent to 8.8194 per dollar.

‘Profit-Taking’

The seven-day relative strength index for the yen versus
the dollar rose to 32 today after reading equal to or below the
30 level for nine days. A level of 30 indicates an asset may
have declined too far, too quickly, and is due for a correction.

Futures traders added to bets the yen will decline against
the dollar, Commodity Futures Trading Commission figures for the
week ended Nov. 20 show. Net-short bets rose to 51,389
contracts, the most since April 27.

“We’ve had a very good run in the dollar-yen over the past
few weeks -- we went all the way from 78 to 82 -- so you can
expect some type of profit-taking,” said Charles St-Arnaud, a
foreign-exchange strategist at Nomura Holdings Inc. in New York.

Biggest Decliner

Japan’s currency has fallen 9 percent this year, the most
among 10 developed-nation currencies tracked by Bloomberg
Correlation-Weighted Indexes. The euro and the dollar are the
next-worst performers, each losing 2.3.

The yen’s year-to-date losses accelerated last week as
investors anticipated a victory for the political opposition,
which favors more monetary easing, in a Dec. 16 election.

There is technical support to limit the yen’s strength
versus the dollar at 81.70 to 81.40, Niall O’Connor, a New York-
based technical analyst with JPMorgan Chase & Co., wrote to
clients today. Remaining above 80.70 will maintain the yen’s
weakening bias, he wrote.